Let us assume that you have been asked to calculate risk$-$based capital

ratios for Marissa Bills $($MB$)$ Bank, a regional commercial bank, with the following

accounts:

Cash $=$ $$10$ million

Government securities $=$ $$8$ million

Mortgage loans $=$ $$33$ million

Other loans $=$ $$55$ million

Fixed assets $=$ $$15$ million

Intangible assets $=$ $$2$ million

Loan$-$loss reserves $=$ $$6$ million

Common equity $=$ $$8$ million

Trust$-$preferred securities $=$ $$4$ million

Cash assets and government securities are not considered risky. Loans secured by real

estate have a $50\%$ weighting factor. All other loans have a $100\%$ weighting factor in

terms of riskiness.

a$.$ Calculate the common equity capital ratio of MB Bank. At the year$-$end, if the

MB Bank has $$2$ million in bad mortgage loans, how the common equity capital

ratio would change?

b$.$ Calculate the Tier $1$ capital ratio of MB Bank using risk$-$adjusted assets.

c$.$ Calculate the total capital $($Tier $1$ plus Tier $2)$ capital ratio of MB Bank using

risk$-$adjusted assets.

d$.$ As a manager of MB Bank, what actions could you take if the central bank $($i$.$e$.,$

Federal Reserve Bank$)$ increases the regulatory requirements of Tier $1$ and Total

Capital ratios across the commercial banking industry?